VICAT battles energy costs with higher cement prices

This week VICAT released its 9M22 results that saw the cement producer's consolidated sales reach EUR2697m, a YoY rise of 15.7 per cent compared to 9M21. Against a backdrop of soaring energy costs and high inflation, the company managed to impose large selling price increases in most markets. Nevertheless, EBITDA margins are expected to fall.

VICAT's cement sales volume reached 20.23Mt in the 9M22, down five per cent from 21.30Mt in the 9M21. Operational sales, however, improved with higher cement pricing, climbing to EUR1.687m, up 18.3 per cent compared with EUR1.426m recorded in the 9M21.

While France remains VICAT's largest revenue market with EUR889m recorded in the 9M22 compared to EUR824m in 9M21. A slight fall in cement demand was offset by the sharp rise in cement pricing, which enabled the company to increase operational cement sales by 8.6 per cent YoY in the 9M22. In the third quarter, cement sales accelerated, rising at the higher rate of 12.6 per cent. In the rest of Europe, cement demand was less encouraging with operational sales rising by just 2.6 per cent.

The Americas have been a strong source of revenues for the multinational and in the 9M22 cement sales grew by 3.6 per cent in the USA. VICAT was impacted by the start-up of the Ragland kiln in Alabama in the 2Q22 and 3Q22, but this was offset partially by the strong increase in deliveries in California. Operational sales in the cement business were stable at 0.2 per cent growth in the 3Q22, at constant scope and exchange rates.

The Brazilian operations comprise the Ciplan Cimento Planalto facility in Sobradinho. Cement sales increased by 27.6 per cent to EUR165m. Prices rose significantly in the 9M22 and in the 3Q22 cement sales rose by 24.5 per cent compared to the 3Q21.

In Asia, VICAT's Indian operations performed strongly as sales rose by 11.6 per cent to EUR320m over the 9M22 period, driven by a 7 per cent rise in cement prices. The debottlenecking of the Kalburgi Cement plant enabled the company to increase cement capacity at the facility to more than 10,000tpd. In addition, the Bharathi Cement Corp subsidiary inaugurated its 0.75Mt bulk cement terminal in October 2022 serving the major markets of Tamil Nadu and Kerala.

In the Mediterranean, Turkey continued to experience higher input costs and a hyperinflationary environment. Very substantial prices hikes were successfully introduced, which limited volumes, but saw cement sales revenue climb significantly by 169.5 per cent to EUR129m. Furthermore, during the 3Q22 cement sales rose higher still by 221.3 per cent.

African operations saw the only revenue decline for cement operations worldwide. VICAT's cement business slipped by 5.9 per cent in the 9M22. While cement sales were stable in Senegal, sales in Mali’s market contracted and this was not fully offset by growth in Mauritania. Cement sales in the 3Q22 in Africa followed a similar pattern showing a decline of 9.9 per cent compared to the 3Q21.

Ultimately, the company's price-driven growth is not likely to be enough to offset margin pressure. Industry analysts at CIC Market Solutions (France) forecast a fall in full-year EBITDA margins, from 19.8 per cent in 2021, to 16.9 per cent in 2022.

Energy costs and capital expenditure
These results should be viewed against a background of increased production costs for cement manufacturers. VICAT reports that energy costs totalled around EUR400m in 2021, 57 per cent of which were related to the use of fuel. In 9M22 costs rose by 88.7 per cent by September 2022, including a rise of 103 per cent in fuel prices and 66 per cent in electricity prices. To combat rising energy costs in France and Switzerland, the group announced further price rises of EUR20 in France from 1 November and CHF30 (US$30.3) in Switzerland from 1 January 2023.

While 2022 could see capital expenditure for the group reach EUR400m, VICAT has announced it will pay particular attention to reducing capital expenditure from 2023 onwards and will accelerate that trend in 2024.

Concrete and aggregate performance
Concrete volumes in 9M22 totalled 7.477Mm³, down 4.8 per cent from 7.853Mm³ in the 9M21. Aggregate volumes rose to 18.61Mt, up 3.8 per cent from 17.93Mt in the 9M21. Operational sales of concrete and aggregates again saw an improvement to EUR1.039m, increasing by 16.4 per cent from EUR0.892m in the 9M21. Turkey and Brazil saw the largest rises in operational sales for concrete and aggregates rising by 173.5 per cent and 51.5 per cent, respectively.